On January 1, I launched DVK’s Dividend Growth “ETF” on Motif Investing. Motif allows you to set up a portfolio and buy it for a single commission. You can join Motif Investing for free.
A portfolio on Motif acts like an ETF in many respects. Here are two important similarities:
• You can designate the amount you want to invest (say $10,000) and Motif will calculate the exact number of shares (whole and fractional) that you get for each stock in the portfolio. It places that number of shares (such as 6.41) in your account.
• For the price of a single commission, you get instant diversification.
The idea behind our “ETF” is to have a dividend growth portfolio with broad interest across the dividend investing spectrum. It contains a diversified lineup of stocks from many industries with varying yields and dividend growth rates. All 29 stocks have at least a 5-year streak of raising its annual dividend.
This pie chart gives you an idea of the diversification of the portfolio:
The table below is the Dividend Calendar for the portfolio.
Cells colored green indicate months when dividend payments are expected for each stock.
Cells colored yellow indicate payments that are also increases.
If a yellow cell has a number in it, that is the percentage increase received (or already announced for future months).
Yellow cells without numbers mean that an increase is expected but not yet known.
Most of the stocks normally increase their dividend once each year and pay quarterly (that is, 4 times per year).
Two stocks have different schedules.
• Realty Income (O) usually increases 4 times per year and pays monthly.
• Simon Property Group (SPG) has been inconsistent over the past few years. It pays quarterly, but it has increased its dividend 1, 2, or even 3 times per year over the past several years. Happily, it delivered an increase that I was not expecting in February.
The calendar was constructed by examining the payment histories of the stocks for the past 1-2 years. As we will see below, the months of expected payments sometimes vary.
As explained in the January report on this “ETF,” for reporting purposes I scale amounts to a standardized investment of $10,000 in the portfolio. That is common practice. It allows different investments to be compared directly to each other without needing to recalculate based on different investment sizes.
This standardization affects both elements of return:
• Dividends are the amounts that would be paid on the number of shares (whole shares and fractions of shares) that you would own if you’d invested $10,000 at the beginning of the year.
• The price increase is based on an initial investment of $10,000.
First Quarter Results
In the first quarter, all but one of the 29 stocks in the portfolio paid at least one dividend. Altogether there were 26 distributions received, and 6 of them were increases.
Here are the payments on a $10,000 portfolio in the first quarter. Note that:
• The number of shares owned for each stock is the number that would have been purchased with a $10,000 investment on the first trading day of 2017.
• The dollar amounts are the dividend payments that would have been received based on owning that number of shares of each stock.
A few notes are in order:
1. Although 4 payments would normally be expected in January, only one was received. This is because on January 1, the first day that the portfolio was available for purchase, the ex-dividend days for the other 3 stocks had already occurred, so it was too late to qualify for the January dividends. This is a one-time start-up situation.
2. A couple of payments that were expected in February slipped into March. Companies are not always consistent from year to year on the exact dates that they make payments. Over the course of long-term holding, the impact of these date changes is negligible.
3. Altria (MO) did not make its expected payment in March. The scheduled date for the dividend is April 10. It will show up in next quarter’s report.
The total dividends received in Q1 were $74.63. If we were to extrapolate that out to the end of the year, we could anticipate receiving $299.52 in 2017. That would be a yield of 3.00% on a $10,000 investment.
But we know that understates the real income picture.
• We lost 3 payments to a start-up situation that will never happen again.
• Altria’s payment slipped out of the quarter.
So a more realistic calculation of the portfolio’s yield would be to add those back in. I have set up the $10,000 portfolio on Simply Safe Dividends, and it projects an annual income of $344 on the portfolio. That would equal a yield of 3.44%.
That projection is based on current payout rates. But we know that several stocks still have dividend increases coming in the last 9 months of the year. That will raise the income stream further.
I don’t like to speculate about the size of future increases, but rest assured that they are coming. As we saw in the Dividend Calendar, several increases have already been announced for April and May.
As of right now, this is how Simply Safe Dividends portrays the full year’s dividends based on information known at this time:
The bars for months later in the year will get taller as dividend increases are announced.
The second component of total return is price change.
In Q1, the price of the portfolio rose 2.2% to $10,220.
Note that unlike dividends, which you receive in cash, price changes are unrealized “paper” gains unless you actually sell.
Dividends are always positive, but prices go up and down. Sometimes the price component will be negative, not positive as it was this past quarter. That is true of all stocks and stock portfolios.
In this “ETF,” dividends are not automatically reinvested. That is the same as with actual ETFs, which simply credit the dividends to your account. You can reinvest them if you wish, but the ETF does not do it for you.
Therefore the total return of the Dividend Growth “ETF” is:
Total Return = Dividends Received + Price Change
Plugging in our numbers, we get:
Total Return = $74.63 + $220 = $294.63.
In percentage terms, that is an increase of 2.9% for the first quarter of 2017.
In Q1, about ¾ of the total return came from the price changes. But as noted above, prices go up and down, and in some quarters we will see that more (or all) of the total return will come from its dividends rather than from price changes.
Indeed, sometimes the only positive return is from the dividend component. Over time, it will be interesting to track which component – dividends or price changes – generates the most return.
Another interesting thing to keep track of is the record of dividend payments, increases, and cuts in the portfolio. Here’s the scoreboard so far.
Dividend Events for DVK’s Dividend Growth “ETF”
Since Inception January 1, 2017
Further Information to Help You
How to Find the Portfolio on Motif
You can consult the “ETF” at any time by viewing it on Motif’s site. (If you are not a member of Motif, go there the first time via the ad at the bottom of this article. That way, if you decided to join Motif or buy anything there, you will get the benefit of the offer in the ad.)
To find the portfolio at Motif, just put “vanknapp” into the search box, like this:
There is only 1 result for this search, which is DVK’s Basic Dividend Growth “ETF.”
If you then click on the blue title of the motif, you will go to the portfolio’s detail page. Here is the summary information at the top of that page.
• The blue button, BUY MOTIF, lets you purchase the portfolio if you want to.
• The gray button, REBALANCE MOTIF, allows you to customize the portfolio. For example, say you like the general portfolio but find Altria unacceptable, because you refuse to invest in tobacco companies. Using the gray button, you could remove Altria, replace it with a different stock (or just leave the slot empty), and buy your customized portfolio without having to re-create the entire thing from scratch.
Scalability of Results
As discussed earlier, the results shown in this article have been standardized to an initial investment of $10,000.
The results are scalable. That means that if you invested, say, $1000, your dollar paybacks would be 1/10th the size shown here. If you invested $50,000, your dollar results would be 5 times the size shown here.
In terms of percentages, all the results are the same no matter how much is invested.
When I selected the stocks for this portfolio, I deliberately favored stocks that have displayed low price volatility over the years. There were two reasons:
• Historically, low-volatility stocks tend to outperform high-volatility stocks.
• Lower price volatility can help psychologically when the market tanks. Low-vol stocks should tank less, providing less opportunity for panic.
The volatility can be seen both in Motif’s and Simply Safe Dividends’ displays.
Motif shows volatility on a spectrum, and this portfolio lands in their second-lowest category. Simply Safe Dividends displays beta, which is a measure of volatility compared to that of the S&P 500. At 0.69, that means that the “ETF” should be only 69% as volatile as the index.
I also deliberately selected stocks with good dividend safety. To gauge safety, I used the Dividend Safety Grade from Simply Safe Dividends.
In their portfolio analyzer, Simply Safe Dividends computes the average safety of the whole portfolio. As of the end of the first quarter, here is their grade:
That’s 88 points on a scale of 100, meaning that overall the portfolio’s dividends appear to be very safe. The grade is practically unchanged from when I opened the portfolio at the beginning of the year.
How to Find Information about the Portfolio on Daily Trade Alert
Daily Trade Alert has a pull-down menu at the top of every page for this project, indicated here by the yellow dot.
Go there to find information about how the portfolio was created, its goals, how the individual stocks were selected, and prior articles about the portfolio.
— Dave Van Knapp
Dave’s Disclosure: On January 3, 2017, I invested about $10,000 in this “ETF” so that I have skin in the game. My interest in building this portfolio is for educational value, plus to have another illustrative real portfolio tracking forward. I believe that real-time portfolios are more educational and psychologically realistic than back-tests. Back-tests utilize 20-20 hindsight, and they do not challenge many of the issues that investors face in managing a real portfolio.